I throw the phrase financial moron around a lot [maybe too much], labeling people (perhaps forever) as dangerous holders and users of their own money.
The truth is, there are tons of ways to be financially stupid, and we ought to think about that before we leave someone we care about to their own devices with their hard-earned money.
That said, stupid is something we do, not necessarily what (or whom) we are… thus there are things that we can do to remedy the condition.
But 1st things 1st… recognition. Here is a list of 12 versions of financial stupidity that you should kill right now to improve your financial results.
Strict reliance on fundamental analysis alone is a classic sort of stupid. This is not the stupid of, "if you knew then what you know now," but the simpler question: "Given what was clear at the time, why did you make such a bad decision?" More specifically, if your fundamental analysis says “Buy”, but your Price Behavior analysis [and you do analyze Price Behavior don’t you?] says “Sell”, with which analysis do you go? Here’s a very large hint… It doesn’t matter which track you take really, as long as you put protective stop losses in place. And guess which approach is more likely to do that…
Intentionally ignorant is the stupidity of not seeking out the information that was knowable and would have been worth knowing before you engaged with the markets or a particular security. It’s a form of intellectual laziness that can be dangerous in the markets. Jumping into the markets and risking your hard-earned money before you understand what you’re doing is a special form of stupidity. Price Behavior education anyone? This is especially true when you intentionally ignore information that you could have sought out before dipping your toes in the trading waters.
Failure to account for the context of your trade opportunities is stupid. Very stupid actually. This is like what happens when we put our foot in our mouths in a social setting… or how we damage our careers by imbibing a bit too much in a professional setting. Often, it seems particularly stupid when we're willfully ignorant about something we knew or certainly should have known. In a trading context, that means not having and/or ignoring the trading history of a security and, more specifically, how said security is trending.
The inability to read Price Behavior isn't a form of stupidity necessarily, but it often looks like it. Some people think they are just unable to learn this skill, but mostly it's a lack of effort and, more important, deliberate practice, that leads us to be unable to read the market as we should.
Busy/Distracted is a frequent excuse for making a stupid call. After all, when the stupidity happens, it's probably because we didn’t have a process to make and/or weren’t focused on the decision. You’re right, it's not a good excuse, but it's a common one.
Self-destructive is a particularly widespread form of stupidity among people who have privilege and opportunity that they're not sure they deserve… but somehow feel is an entitlement. That sense of entitlement gets transferred to their market activity in the form of “but I read EVERY research report available and did ALL of the fundamental work… and the stock STILL went down right after I bought it.” Remember... the market doesn’t owe you anything. Just like the job market doesn’t owe you and your fancy (and often expensive) degrees anything. Both the stock and job markets both offer opportunity... nothing more. It’s up to you to go and get it.
Emotionally overwrought stupidity happens because we're tempted to amplify and maintain the drama going on in our heads (and our lives), which distracts (there’s that word again) us from seeing, believing, processing and utilizing what we see on the charts.
Fear, of course, is at the heart of a lot of our less than optimal judgements. But fear itself, in certain contexts, is a form of stupidity. For example... if you haven’t even investigated engaging in the opportunities available to you in the market because you’re "afraid," that fear is a form of stupidity.
Unwilling to accept you’re “wrong” is a form of stupidity. Failure to accept you’re “wrong” quickly is even more stupid and, further, it has multiple negative affects not least of which is your degree of wrongness (more commonly known in trading as financial loss) only gets bigger… Additionally, refusal to accept that you’re wrong quickly results in opportunity costs… i.e., the chance to enter a different (more profitable) position with the money sitting in the losing trade.
Slow is not stupid... not at all. It's just not going to win you many prizes on a game show… nor in the markets.
A “long-term focus” is what we see encouraged all the time from people who should know better… and maybe even do [know better]. And yet they come back to this trap again and again, because it's a habit. So called “investing” anyone?
Rush to judgment is a particularly challenging variation of stupid. Our unwillingness to sit with ambiguity causes us to decide [and act] before we should.
Don’t hate these facts…
And no, unlike members of certain political group, you’re not “entitled” to your own set.
Stupidity need not be incurable.
So take the steps needed to resolve any stupid moves that you habitually make.
Resistance would not be futile.
But it would be stupid.
